Business 9 April 2021, 3:51pm

Hungary blocks sale of Aegon’s CEE business to VIG

Portfolio

The Hungarian government has vetoed the sale of Hungarian insurer Aegon to the Vienna Insurance Group (VIG) according to an announcement on VIG’s website, Telex reported earlier this week.

“VIG received a decree yesterday afternoon in which the Hungarian Interior Ministry announced that the intended acquisition by a foreign investor of the Aegon companies in Hungary is denied,” the statement said.

As part of the approval process, Vienna Insurance Group has been in talks with the Hungarian Finance Minister since January 2021. The decree is in contradiction with the course of the talks to date, VIG said, adding that it expects the issue to be resolved positively in the near future.

Aegon has since confirmed the news and said it “has taken note of an announcement issued today by Vienna Insurance Group” and will continue to work with VIG to close the transaction.

Nobody expected this

In a recent interview with Portfolio, Gábor Lehel, VIG’s board member in charge of Hungary, said Aegon Hungary is to continue under a new brand name but as a separate entity from this summer following the closing of the planned acquisition. This would fulfil an old ambition of VIG as combines with its existing insurer Union, it would become market leader in Hungary, Lehel added. This shows that both parties considered the deal to be as good as done, and nobody expected the veto of the Hungarian government.

Is should be noted, however, that a decree published near the time the acquisition was announced tied all similar transactions to the approval of the Interior Ministry.

The transaction was carried out by the parties with the help of Allen & Overy. The company said at a press conference a few weeks ago that restrictions on FDI are increasing around the world as a result of a kind of nationalist effort. The Aegon transaction is also subject to such a restriction, so it must be demonstrated that the transaction does not pose a national security risk, the company said. A separate certificate had to be presented to the Interior Ministry to this end, but Allen & Overy said at the time that this was just a formality.

As Portfolio reported in several earlier articles, Aegon announced last November that it is selling its insurance, pension and asset management businesses in Hungary, Poland, Romania and Turkey to the Vienna Insurance Group.

The purchase price was set at EUR 830 million, 2.6 times the book value of the operations as of mid-2020 and 15 times last year’s profit.

Both values are very high, especially in view of the fact that the transaction does not offer enormous synergy opportunities, at least in Hungary. Regional insurers are only priced by stock exchanges at an average P/E of 0.6 and a forward-looking P/E of 8.3. Based on the latter, it is seller Aegon and buyer VIG that have the worst ratings among major insurers in the CEE region.

As reported at the time, the deal would involve Hungary’s third largest insurer, the biggest volume of home insurance, the eighth biggest fund manager and the largest voluntary pension insurance fund changing hands. This would not only open a new chapter in a 28-year insurance success story but would also represent the biggest acquisition deal in Hungary’s insurance sector in the past 12 years.